The Frankfurt Stock Exchange

Summary:The Frankfurt stock exchange is home to a very
important group of companies and represents the might of the German
economy. Needless to say, Germany is one of the world's economic
superpowers and a real force within the European Union and the Euro
currency. What happens in Germany and in this market matters!

The importance of the German economy to the Euro zone, European
Economic Area and European Union more generally, is of key significance.
One website that covers EU affairs particularly well is
EUObserver.

In many instances, how Germany is faring has a wide impact. This
is because interest rates for the Euro are set - in part - on the
impact any change will have on member economies. Responsibility for
setting these interest rates lies with the
European Central Bank.

Since Germany has the largest economy with the
Euro
currency, any interest rate changes must be able to assist - or at least not harm - the German economy.

The
ultimate impact of this is that smaller Euro zone economies - perhaps
in the Baltic countries or Ireland, for example - have interest rates
set for them with very little significance paid to the impacts on their
smaller nation. This was very evident through the early years of this
century when Ireland was growing at an incredible pace, and almost
certainly needed higher interest rates to slow the economy and ensure
that growth was sustainable.

Within the corporate world, the daily
movements of the Frankfurt stock market are reported worldwide. Such
important news channels as CNN will provide daily and mid-session
updates - which demonstrates the importance of the exchange.

Frankfurt
is the most important of Germany's eight regional stock exchanges.
Trading is via a traditional floor based auction system.

Trading
in German equities also happens via a order driven and matching system
which is known as Xetra. It is this for which the exchange is best known
- Xetra Dax 100 is the name of the most important Frankfurt Stock Exchange Index.

The name is not taken from a sponsor as is the case in several other
major exchanges. Instead, the Xetra comes from the electronic trading
system and
DAX
from names of predecessor indices. These were the Deutsche Aktien Xchange 30 and before it the Deutscher Aktien-Index 30.

It
will be no real surprise to the reader that at the time of writing, the
main companies include several car manufacturers (such as BMW) and a
number of former state monopolies which have been floated by the German
government. These include companies such as Deutsche Bank, Deutsche
Telekom and
Deutsche Borse.

Just as with many of the other major indices around the world,
Germany has it's own speciality, taking after the home economy. Germany
is well regarded as an industrious and productive nation - a country
where things are designed and made. This shows through in the index
where manufacturing and 'diversified industrials' play a strong role.

This
is, of course, in stark contrast to other locations where different
sectors are much more represented (for example, in London and Hong Kong
there are lots of large listed financial companies and in Australia and
Canada there are lots of minerals and natural resource companies).

The DAX has a base value of 1,000 as at 31st December 1987 and since
18th June 1999, only XETRA prices are used to calculate all DAX indices.

As
with most other major exchanges, clearing and custodial services are a
major part of the infrastructure. Clearstream conducts the clearing
house responsibilities for both the cash market on the exchange and the
OTC market (over the counter) for derivative contracts.

To give
the size and scale of the index some sort of description, there are
approximately 10 million transactions concluded in a calendar month
(including both securities and derivatives) and the amount of assets
under custody is upwards of 10 trillion euro.

As might be expected
from a leading index, much of the action in other European bourses
follows a lead made by Germany. As Europe's powerhouse economy, what
happens in Germany often impacts a wide number of other countries.
Needless to say, this is also the case in European economic policy, as
has been shown repeatedly during the problems faced by the euro in 2010
and 2011. For this reason, German politicians, industrialists,
economists and financiers often provide 'leadership' for the rest of
Europe and the European Union.

The L-DAX index (Late DAX 30) is operated between 17.30 and 20.00 CET.

On the trading floors, specialists trade the larger stocks. The Xetra system is available for every listed company.

Orders
are input by brokers in a pre-trading phase which is then followed by a
call phase. This is known as the price discovery period. After this
time, continuous trading occurs and is then completed with a closing
call phase.

The official settlement period is T+2, though
many overseas investors will settle at T+3. Clearstream acts as a
clearing house for all German trades in equities. Since the creation of
the euro currency, all German listings are quoted in euros.